Article 18.1 of the Statute of the European System of Central Banks (ESCB) states that all Eurosystem credit operations have to be based on adequate collateral.
The underlying assets provided by the Eurosystem’s counterparties must fulfil certain requirements or eligibility criteria in order to be classified as eligible. These criteria and further information on eligible assets are laid down in part 4 of Guideline (EU) 2015/510 of the European Central Bank of 19 December 2014 on the implementation of the Eurosystem monetary policy framework (ECB/2014/60). Eligible assets which serve as collateral for monetary policy operations may also be used as collateral for intraday credit. Furthermore, assets’ eligibility is, in addition to other specific criteria, a prerequisite for their purchase under the monetary policy asset purchase programmes.
The implementation of monetary policy in the euro area is based on a relatively broad collateral framework. This framework is uniform across the entire euro area and comprises marketable assets, currently to the tune of approximately €14 trillion, and non-marketable assets. In the aggregate, however, only a fraction of this pool of eligible assets is actually used as collateral (see the latest data on how monetary policy collateral is used in the Eurosystem). As a rule, no distinction is made between marketable and non-marketable assets with regard to their quality and their eligibility for individual credit operations. Accordingly, both marketable and non-marketable assets may be used on a cross-border basis in the Eurosystem. However, the Eurosystem reserves the right to exclude individual assets from use as collateral for credit operations at any time.
Risk control measures
As a risk control measure, the Eurosystem applies valuation haircuts and variation margins to eligible assets. Valuation haircuts vary depending on the type of collateral, residual maturity, credit standing and type of interest.
Generally speaking, a Eurosystem counterparty must not submit any assets issued or guaranteed by itself or by an entity with which it has close links. Exempted are assets where a close link between a counterparty and a public entity with the right to levy taxes exists. Also not directly affected by this rule are CRR-compliant covered bonds, provided their cover pools do not contain government-guaranteed uncovered bonds issued by the counterparty itself or closely linked entities (which are likewise ineligible for own use). However, in the event of own use, covered bonds are subject to additional haircuts.
Furthermore, the assets must meet the high credit standards laid down in the Eurosystem Credit Assessment Framework (ECAF). In assessing the credit quality of eligible assets, the Eurosystem takes into account information from one of the following sources: external credit assessment institutions, NCBs’ in-house credit assessment systems, counterparties’ internal ratings-based systems or third-party providers’ rating tools. Those sources must meet certain criteria to be included by the Eurosystem in the ECAF. In principle, the credit quality threshold for eligible assets corresponds to a “BBB-” rating (investment grade). The Eurosystem considers a probability of default of 0.4% over a one-year horizon as being equivalent to this threshold.
Overview of all marketable assets
A list of eligible marketable assets is available on the ECB’s website. The list is updated daily and is published the day before from 18.15 (CET). The Eurosystem does not publish a list of non-marketable assets or the eligible debtors or guarantors thereof who fulfil the eligibility criteria.